Manufacturers have few choices regarding inventory related to a product being discontinued. Excess materials may be scrapped or written off. Alternatively, additional product may be built (“build out”) in order to further reduce inventory for the product being obsolesced. The first choice frequently results in recovering a fraction of the cost of the materials. The second choice could result in additional profits but there is greater exposure in procurement of materials especially unique materials needed to complete the product for sale.
One method of analyzing the tradeoffs between scrapping or building out is referred to as Match Set Analysis. This typically entails “exploding” each product forecast demand while computing consumption of excess inventory and ending inventory. Match Set Analysis does not consider limitations on part availability or procurement budgets. Business objectives such as minimization of write-off costs or maximization of gross profits are not explicitly considered. Moreover, Match Set Analysis does not consider demand uncertainty and thus ignores a risk factor for acquisition of unique parts.